As for answers, most of the Government's rhetoric has been directed towards 'deregulation' and 'easing burdens on businesses'. Examples of this include Vince Cable's plan to make it easier to sack people and Chris Grayling's intention to scrap the vast majority of EU health and safety provisions. Welfare reforms designed to encourage people back into work have very much taken on the 'stick' rather than the 'carrot' tone with punitive new measures for job seekers who refuse work.
The problems in the British economy mainly derive from an absence of key demand. Growth is stagnant because people are not working and therefore not spending. Any plan to change our economic fortunes must be geared towards motivating the human capital largely wasted at the current time.
One way of doing this is to introduce what has been called the 'living wage'. Put simply, this involves raising the national minimum wage rate to £7.20 (£8.30 in London) from its current level at £6.08. The living wage is designed to enable every worker in the country to provide their family with the essentials of life. Currently, the scheme is voluntary and there are a number of employers that adhere to the campaign by paying their workers the higher rate. If it was incorporated into law, however, the economic benefits would be significant.
Firstly, it would serve as genuine encouragement for those on welfare to find work. Many young people in particular fail to see the incentive in finding a full time job that promises a weekly income of £200 at the most. Instead, they are content to spend their time on benefits at a huge cost to the taxpayer or, failing that, many turn to a life of crime to supplement their earnings. While tough welfare reform to prevent abuse is also required, the introduction of a living wage would motivate those in desperate situations to turn their lives around.
Secondly, it would improve levels of productivity in the economy. If employees know that they are receiving a decent wage they will be more likely to work hard to keep their jobs. In addition, they would be more likely to actively seek out promotion opportunities in order to rise further up the income scale. Improving productivity in the workforce is hugely important for the UK given the fierce competition from highly efficient economies, such as China and India.
Employers who have brought in the living wage have reported a 25% drop in absenteeism and significant gains in terms of work quality as a result of moving to the higher rate. Rather than making employers more cautious before taking on new staff, therefore, there is every chance that the living wage could actually boost recruitment.
David Cameron and other senior Conservatives like Boris Johnson have voiced support for the living wage campaign. If they truly believe in the merits of this cause, however, they will pledge to enact the living wage as law in order to get our economy moving again. Doing so would send out a positive message that trust and optimism will get us out of this mess, rather than the fear and division current policies are producing. Time will tell if the Government has the bravery to face down its demons and do what is right for our country.
Really interesting post and one I largely agree with. I would support a living wage on a principle and social basis - but not an economic one. In terms of competitiveness you would actually drive business away from the UK. Take for example a call centre which largely employs workers on minimum wage, by raising the cost of employment you make re-locating to places like India comparatively cheaper. Additionally, small businesses employing 5-10 staff would be hit really hard but such an increase, and it could put them out of business. Ultimately, I think what you'd end up seeing is any businesses large enough to pay the wage rise would pass that cost on to the consumer and all you'd end up with is inflation.
ReplyDeleteIn relation to the competitiveness point, I think a living wage will drive up productivity thereby making UK companies more competitive in the global market. Price competition is not a major field for British firms these days; our comparative advantage lies in quality and innovation, both of which will benefit from the introduction of a living wage.
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